7 Asset-Based Loan Options That Might Be Right for Your Business

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7 Asset-Based Loan Options That Might Be Right for Your Business

If you need more money to finance your business, you may want to consider taking asset-based loans. As the name suggests, you secure these loans with your assets, meaning that if you don’t repay them, you forfeit the asset in question. They are often available, and easier to secure, but you need to know the options available for your business.

Asset-Based Loans for Your Business

Knowledge of the different asset-based loans available can help you make the right choice for your business. You may want to assess your assets to see which type of loan you may qualify for before you can approach an asset-based loaner.

Here are some of the asset-based loan options that can suit your business:

1.  Accounts Receivable

This loan assists your business in receiving the cash in accounts as pledged in collateral and through exchange. As the receivables are being corrected, you’ll be able to repay the loan within the shortest time possible. Accounts receivable funding is often appropriate for small business owners, which may not be able to secure financing from traditional lenders.

Individuals with accounts that have existed for longer have little value to access loans. Lenders calculate the monthly interest on accounts receivable by applying daily percentages to outstanding receivables every day. If you default on payment terms, you’re likely to have the asset seized on report receivable.

Pros

  • Converts credit sales and invoices to cash
  • Eases short-term financial stress
  • Doesn’t interfere with customer relations

Cons

  • More expensive than traditional lending
  • Business may lose money in the spread sale of an asset

2.  Inventory Financing

Application of these loans requires your current business inventory as collateral to secure a loan. Lenders undertake conservative valuation of the merchandise, and their maximum loan is 100 percent of the final figure. Average lending will require 60 to 80 percent of the total value in the retail inventory.

The manufacturer’s list consists of 30 percent of the components and unfinished materials. Your business receives this loan on a short-term basis, and the interest rate is similar to receivable lending. You can use this financing to purchase new inventory in upcoming seasons, requiring additional stock listing.

Pros

  • Quick access to cash
  • No incurred debt as the purpose is the sale of assets
  • Eliminates the need for collections

Cons

  • Harms customer relations
  • Upfront cash price is higher than traditional loans

3.  Leasing

The leasing companies and banks allow you to rent equipment and other business-related assets to grow your brand. You can search for agents related to manufacturing companies who arrange lease terms and credit details. Other agents you may select to consult include subsidiary companies or specific lessors.

This allows you to avoid large down payments during purchases and additional funds for business expenditures. It is difficult for starting up a business to use conventional lenders as they require an operating history from other leases.

Pros

  • More cash freed up
  • Reduces debt on financial statement
  • More flexibility in equipment change and upgrade

Cons

  • Leaseback options may not be favorable

4.  Trade Credit and Insurance Loans

If you’re wondering where to obtain a loan for your business, personal contacts can provide credit if they are willing to invest in the business. Your suppliers and customers will avail finance through credit and pricing options.

You acquire loan options through trade credit when suppliers delay the due date of prices during the purchase of goods from suppliers. The seller can opt to allow you to pay the debt in installments. This will allow your business to have more working capital for running the enterprise.

Pros

  • Readily available
  • Payment can be spread over several months
  • Minimal down payment

Cons

  • Delays in payment for a purchase
  • Sale occurs on consignment

5.  Insurance Company Financing

An individual who has substantial cash surrender value in a life insurance policy may opt to borrow that amount from the insurer. In ordinary circumstances, you borrow against the policy and re-lend the money to your business at the standard interest rates. Your business may take the interest deductions in the loan, and you don’t earn taxable interest on the transaction.

When repaying the life insurance loan, you are not obliged to pay the principal amount, only the interest due annually. This policy will allow you to add accumulated interest on principle as long as you’ve not borrowed a cash surrender policy.

Pros

  • Covers business property
  • Replaces income
  • Protects liabilities

Cons

  • May deny claim
  • Pays slowly

6.  Real-Estate Financing

This involves the use of your real estate as collateral to finance a business. After receiving all the financial documents on the property, the lender conducts a cash flow analysis to determine its value and viability. The loan factors rental income and account expenses on the property and its maintenance.

Available loan terms vary for a maximum of five years to allow more time for property resale or arrange on traditional refinancing. Also, you can obtain this loan even with an unfavorable credit score.

Pros

  • More room for negotiation
  • Short and easy terms of payment
  • Have a simple application process

Cons

  • Has high-interest rates
  • Not available for new investors
  • High down payment

7.  Equipment Financing

Some lenders specialize in financing equipment that has a resale value. They offer a wide range of options with flexible arrangements, and the asset should be crucial for your business operations.

Pros

  • Reduced upfront costs
  • No depreciation
  • More cash flow
  • Reduced costs of running a business

Cons

  • Do not own the asset
  • Not designed for short-term use.
  • Accidental damages are not included in the loan

Partner With AdvancePoint Capital for Business Funding

The process of securing loans for your business can be tricky, especially if you’re new to the field. We at AdvancePoint Capital can help you obtain the right asset-based loans to finance your business growth. You can count on our experience and professionalism to help you propel your business to the next level of growth. For more information, please feel free to contact us today.

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